Europe should let its regions break free

Investors don’t like the look of what is going on in Catalonia. Every time tensions between Madrid and Barcelona ramp up, stocks in Madrid start to slide. Banks and businesses have been bailing out, not least because an independent Catalonia won’t be inside the European Union, and won’t be able to keep using the euro. If the proposed new country has a serious economic plan it is keeping it to itself. So far, the Catalan secession makes Brexit look well-planned.

Yet, considered a little differently, this could be the way forward – not just for Spain, but for many other European countries too. A Europe made up of far more powerful regions, and possibly a lot more nations as well, could be more successful. We have had half a century of increasingly centralised power without a great deal to show for it. Breaking that up may in fact do some good, despite the implacable opposition from Brussels and current capital cities. Here’s why.

Firstly, most potential breakaway regions are economically pretty successful. Catalonia is the wealthiest part of Spain, and home to some of its biggest industries. Scotland is not quite the equal of London, but it is as rich as anywhere else in the UK. And no one needs to be reminded of the historic market and trading links of Lombardy and Veneto in northern Italy (the region that more or less invented modern capitalism), which the Northern League would like to see secede from the rest of the country.

With a bit of goodwill from the nations they are breaking away from, and some help from the EU to maintain access to its markets, there is no reason why secessionist regions should not do well.

Secondly, and more importantly, lots of mini states would create a Europe with more diversity, more competition and more experimentation. There is lots of evidence to show that smaller countries are more successful, in much the same way that smaller companies can usually grow faster than the lumbering giants of the global economy.

Just look at a ranking of Europe’s wealthiest countries measured by GDP per person. Luxembourg heads the list, followed by Switzerland, Norway, Ireland and Iceland – hardly big countries. Or take a global ranking. Qatar, Luxembourg and Singapore are the top three. Again, they are all tiny. There is no reason why an independent Catalonia, with a population of 7.5 million, or Lombardy, with ten million, should not fit right into those rankings.

Some tiny but wealthy countries are rich in resources. But Luxembourg isn’t. Nor are Singapore or Switzerland. What they are very good at is focusing on industries where they are strong; building great trading relationships; and creating the kind of deregulated, low-tax, free-trading economies that are well suited to the 21st-century economy. It is easier to do that in a small country than a big one because both politics and society are more easily united behind a single goal.

In truth, the Barcelona bourse in the months after independence would likely be the buy of the decade. The prices of whatever companies are listed there would crash in the chaotic aftermath of independence. But they would rebound quickly as the new country puts its economy together again. Europe has had a half century
of progressively centralising power, and the results have hardly been impressive.

It’s been stuck with a moribund economy, mass unemployment, and a dysfunctional currency. It is hard to see how some regions splintering away could make it much worse, and they might make it a lot better – by allowing more cohesive states to emerge, and new policies to be tried out.